Eurozone economy grew by 0.4% quarter-on-quarter in the first quarter of 2019. Domestic demand in the Eurozone is expected to be the main driver as external demand was weak. Italy climbed out of recession in the first quarter of 2019, while Spain remains the Eurozone’s bright star.

Italy’s slipped into a recession. A quick rebound is not to be expected. New budgetary issues are likely to raise concerns on the market later this year. Growth is forecasted to be flat in 2019. The probability of a coalition break-up is low, but looks set to increase after European elections.

Italy’s economy stagnated in the third quarter on the back of the political situation and weak export orders. The outlook remains poor. An euro area exit and an all-out debt crisis are not imminent, but vulnerabilities to shocks are growing.

In the third quarter of 2018, the Eurozone economy grew by 0.2 percent compared to the previous quarter.
October PMI indicators showed a sharper drop than expected, indicating that growth in Q4 will probably remain low.

With a thought experiment we show how Italy could fall out of the Eurozone ‘by accident’. Many wrong policy decisions appear necessary to reach that point. So the risk that it will happen is extremely low.

On 27 September the Italian government presented its budget target for 2019. The worsened outlook has shocked markets and kept them busy since. The government will expectedly temper part of its plans if necessary to calm markets. That said, the risk that it will do too little too late cannot be neglected.